DATADOT TECHNOLOGY LIMITED

ACN 091 908 726

EXPLANATORY MEMORANDUM

This Explanatory Memorandum relates to the Annual General Meeting of the Company to be held at Conference Room 1, Level 6, University of NSW City Campus, 1 O’Connell St Sydney on Friday, 26 November 2010 at 10.00 a.m.

Financial Report and Reports of the Directors and Auditors

This item allows shareholders the opportunity to consider the Financial Report, Directors’ Report and Auditor’s Report of the Company. Under Section 317 of the Corporations Act the Company is required to lay these 3 reports, together comprising the Company’s Annual Report, before its shareholders at its Annual General Meeting.

Resolution 1: Re-election of Gary Michael Flowers B.Comm., LL.B., FAICD

Under ASX Listing Rule 14.4 a Director, other than the Managing Director, must not hold office (without re-election) past the third annual general meeting following the Director’s appointment or 3 years, whichever is longer.

Under Regulation 6.4 of the Company’s Constitution one-third of the Company’s Directors, other than the Managing Director and not including a Director appointed by the remaining Directors, or the number nearest to but not exceeding one-third, must retire after 3 years or at the third annual general meeting following the Director’s appointment, unless re-elected.

Resolution 1 provides for the re-election of Gary Flowers as Director of the Company in accordance with Listing Rule 14.4 and Regulation 6.4 of the Company’s Constitution.

Mr Flowers joined the Board as a non-executive Director on the 27[th] November 2007. Until 2007 Mr Flowers was Managing Director and CEO of Australian Rugby Union, CEO of SANZAR and a Council Member of the International Rugby Board. He was previously National Managing Partner of Sparke Helmore Lawyers. He is currently non-executive Director and Chairman of DataTrace DNA Pty Limited, Chairman of the Advisory Board to Mainbrace Constructions Pty. Ltd, Director of Ethiad Stadium, Chairman of Mirvac Hotels and Chief Operating Officer for the Mirvac Group. He is Chairman of the Company’s Audit & Risk Management Committee and is a member of the Remuneration & Nomination Committee.

The Board, other than Mr Flowers, recommends the reappointment of Mr Flowers as a director.

Resolution 2: Re-election of Alison Mary Coutts B.E (Chem), MBA, Grad Dip Biotech

Under Listing Rule 14.4 a Director, other than the Managing Director, appointed to fill a casual vacancy or as an addition to the board must not hold office (without re-election) past the next annual general meeting.

Under Regulation 6.2(c) of the Company’s Constitution any Director appointed by the Directors must offer himself or herself for re-election at the next annual general meeting.

Resolution 2 provides for the re-election of Alison Coutts as Director of the Company in accordance with Listing Rule 14.4 and Regulation 6.2(c) of the Company’s Constitution.

Ms Coutts joined the Board as a non-executive Director on the 1st July 2010. Ms Coutts has degrees in Chemical Engineering and Business Administration, a Graduate Diploma in Biotechnology and extensive experience across a number of industry sectors and disciplines. This includes international engineering project management with Bechtel Corporation in the UK, USA and NZ, strategy consulting, management training and organisational structuring with Boston Consulting Group, and executive search with Egon Zehnder. Ms Coutts has worked more recently in finance and investment banking, with a special focus on assisting young innovative companies with the development and implementation of their growth strategies and commercialisation of their technologies. Ms Coutts is Chair of CSIRO’s Health Sector Advisory Council. She is a member of the Company’s Audit and Risk Management Committee and a member of the Remuneration and Nomination Committee. Mrs Coutts has also served as an Independent Director of Clean Global Energy Limited since October 2009.

The Board, other than Ms Coutts, recommends the reappointment of Ms Coutts as a director.

Resolution 3: Share Issue

Resolution 3 provides Shareholders with the opportunity to approve the issue and allotment of a maximum of 34,024,767 shares to Commonwealth Scientific and Industrial Research Organisation (“CSIRO”) in consideration of:

(a) the purchase by the Company of 50% of the issued share capital of DataTraceDNA Pty Limited; and
(b) the assignment to DataTraceDNA Pty Limited of the DataTrace Technology owned by CSIRO.

Listing Rule 7.1

Listing Rule 7.1 requires a listed company to obtain Shareholder approval by ordinary resolution for an issue of securities exceeding 15% of the total number of ordinary shares on issue 12 months before the date of issue. Although Shareholder approval is not required for an issue of securities less than 15% of the total number of ordinary shares on issue 12 months before the date of issue, the number of shares so issued is deducted from the Board’s capacity to issue up to 15% of issued shares in the next 12 months if Shareholder approval is not obtained.

This resolution proposes the issue of a maximum of 34,024,767 ordinary shares, which equate to 9% of the shares of the Company on issue post this issue. While Shareholder approval for this share issue is not required under Listing Rule 7.1, obtaining Shareholder approval will preserve for the next 12 months after this Annual General Meeting the Board’s capacity to issue up to 15% of the shares on issue, including the shares to be issued in this issue.

Acquisition of CSIRO Shares in DataTraceDNA Pty Limited

The Company and CSIRO are joint owners of DataTraceDNA Pty Limited. The joint owners have executed a non-binding Heads of Agreement whereby, subject to Shareholder approval and execution of legal documentation, the Company will purchase from CSIRO 50% of the issued shares in DataTraceDNA Pty Limited to increase its holding to 100%. This Heads of

Agreement was announced to the ASX on 14[th] October 2010. The agreed value of the purchase of the shares, based on an independent valuation, is $1 million. Consideration will be given in the form of ordinary shares in the Company valued at $0.041 per share, which is an agreed price based on the volume weighted average share price of the Company’s shares over the six months to 31 August 2010. This equates to 24,390,244 ordinary shares.

Assignment of DataTrace Technology and Access to Restricted Markets

As sole owner of the DataTrace Technology, CSIRO currently licenses to DataTraceDNA Pty Limited a perpetual, royalty-free, global licence to exploit the DataTrace Technology in all fields other than four reserved fields.

DataTraceDNA Pty Limited and CSIRO, pursuant to the same Heads of Agreement, have further agreed, subject to Shareholder approval and execution of legal documentation, that CSIRO will assign to DataTraceDNA Pty Limited CSIRO’s intellectual property rights in the DataTrace Technology, which will mean:

(a) DataTraceDNA Pty Limited, as owner of the DataTrace Technology, will be able to exploit all the fields the subject of the perpetual licence and in addition the previously excluded four fields; and
(b) DataTraceDNA Pty Limited will no longer be subject to the obligations and restrictions imposed under the perpetual licence.

This further component of the transaction has the agreed value of $395,015. Consideration will be given in the form of ordinary shares in the Company valued at $0.041 per share, which is an agreed price based on the volume weighted average share price of shares over the six months to 31 August 2010. This equates to 9,634,523 shares.

Completion of the assignment of the DataTrace Technology is subject to completion of the acquisition by the Company of CSIRO’s shares in DataTraceDNA Pty Limited.

Total Transaction

The maximum number of ordinary shares to be issued to CSIRO will be 34,024,767, which will represent 9% of the Company’s issued capital fully diluted for this transaction. Ordinary shares issued to CSIRO will rank pari passu with ordinary shares on issue.

Date of Issue and Allotment

The shares will be issued and allotted on completion of the transactions, namely the acquisition of the CSIRO shares in DataTraceDNA Pty Limited and assignment of the DataTrace Technology, which is anticipated to occur by mid-December 2010 but in any event no later than 25[th] February 2011.

The Board recommends approval of this transaction.

Resolution 4: Executive Share Rights Plan

Resolution 4 provides Shareholders with the opportunity to vote on the Company’s new Executive Share Rights Plan.

Purpose of Executive Share Rights Plan (ESRP)

Directors recommend adoption of the ESRP. The ESRP, like the current Employee Share Option Plan (ESOP), is an employee incentive scheme within the meaning of ASX Listing Rule 7.2 Exception 9. Although no options have been issued under the ESOP since August 2006, the ESOP will remain on foot until expiry of the last remaining 500,000 share options in August 2011. From that date the ESRP will be the company’s only employee incentive scheme.

The broad objective of the ESRP is to assist in the recruitment, reward, retention and motivation of company executives. Specifically, the ESRP enables payment in the form of an equity grant of the long-term incentive element of executives’ remuneration packages. The Board’s policy is that share rights granted under the ESRP will be exercisable for no consideration, although the Board does have a discretion to require the executive to pay consideration. Share rights granted at no consideration under the ESRP are in effect zero exercise-priced options made under slightly different Plan Rules from those contained in the current ESOP, which will provide additional benefits to executives at no additional cost to the Company.

The share rights provide entitlement to a full share without requiring payment by executives, eliminate the risk to executives of paying tax should the Company’s shares decline in value below the exercise price of an option issued under the current ESOP, and avoid the need for executives to obtain finance to exercise the rights.

Terms of Scheme

The terms of the ESRP are set out in the ESRP Rules. The key elements of the ESRP are as follows:

Trustee

The Company may appoint a Trustee for the purpose of acquiring and delivering shares to executives and/or holding shares on behalf of executives where this is specified at the time of grant.

Grant of Rights

The Board may grant rights to shares to eligible employees, excluding Non-Executive Directors. The Board will determine:

(a) which employees are eligible;
(b) vesting conditions (if any);
(c) disposal restrictions (if any);
(d) the terms of expiry of the rights; and
(e) whether the shares to be delivered on exercise of the rights are to be held by the Trustee.

A grant of rights does not confer any right or interest, legal or equitable, in shares until all vesting conditions have either been satisfied or waived by the Board at its discretion.

Consideration

Unless otherwise determined by the Board at its discretion when making a grant of rights, no amount shall be payable by an executive upon the vesting of rights.

5% Cap

Unless the Board determines otherwise, the Company will not issue shares on exercise of rights if the total number of shares so issued, when aggregated with:

(a) the number of shares which could be issued were each outstanding offer or grant with respect to shares, units of shares and options or rights to acquire unissued shares, under the ESRP or any other employee or non-executive director share scheme of the Company to be accepted or exercised; and
(b) the number of shares issued during the previous 5 years pursuant to the ESRP or any other employee or non-executive director share scheme of the Company,

but disregarding any offer made, or option or right acquired or share issued by way of or as a result of:

(d) an offer that did not need disclosure to investors because of section 708 of the Corporations Act or was an excluded offer or invitation under the Corporations Law; or
(e) an offer that did not require the giving of a product disclosure statement (as defined in section 761A of the Corporations Act) because of section 1012D of the Corporations Act; or
(f) an offer made under a disclosure document (as defined in section 9 of the Corporations Act) or product disclosure statement,

were to exceed 5% of the total number of issued shares at the time.

Vesting of Rights

An unvested right that becomes a vested right shall be automatically exercised to provide a share to the executive.

The Company may impose disposal restrictions on the shares provided that the maximum term of a disposal restriction does not exceed 7 years from the time of grant of the rights.

Expiry of Rights

Unless an executive ceases to be an employee of the Company by reason of death, disability, bona fide redundancy or for any other reason with approval of the Board, in which case the vesting conditions will be determined pro rata over the period from the grant of the unvested rights to the date employment ceases, all unvested rights held by an executive will expire and the executive will forfeit any right or interest in the unvested rights when he/she ceases to be an employee of the Company.

If unvested rights have not vested by the end of the vesting period the unvested rights shall expire.

Participation in Future Issues

An executive cannot participate in new issues of shares or other securities unless shares in respect of rights held by the executive have been issued.

If the Company makes a pro rata bonus issue of shares or other securities to shareholders and shares in respect of rights held by an executive have not been issued, then the number of shares the subject of the rights will be increased pro rata as if they had been issued.

If the Company makes a pro rata issue of securities other than a bonus issue to shareholders and shares in respect of rights held by an executive have not been issued, then the number of rights or other terms and conditions applicable to the rights may be adjusted at the Board’s discretion, subject to the Listing Rules and Corporations Act.

Transfer

Without the prior approval of the Board, rights and shares subject to disposal restrictions may not be transferred or encumbered.

Reorganisation

In the event of any reorganisation of the issued ordinary share capital of the Company, the number of shares to be delivered in respect of each right will be reorganised in the manner specified in the Listing Rules as being applicable to options at the time of the reorganisation.

Forfeiture

An executive will forfeit all rights or interests in any unvested rights or vested rights if the Board determines that the executive has committed any act of fraud, defalcation or gross misconduct.

Resolution 5: Issue of Share Rights to Benjamin Bootle (Managing Director)

Listing Rule 10.14

Listing Rule 10.14 requires a listed company to obtain Shareholder approval by ordinary resolution before issuing securities under an employee scheme to a Director of the Company.

Terms of Proposed Issue

The terms of the Share Rights proposed to be issued are:

Number of Share Rights 7,500,000 Issue Price Nil

Issue date by 24 December 2010 and in any event by 26 November 2011 Vesting Dates 2,500,000 on the day 18 months after the issue date 2,500,000 on the day 30 months after the issue date 2,500,000 on the day 42 months after the issue date Trading Restrictions 12 months after each vesting date Expiry Date November 2017 Other Terms As per the Executive Share Rights Plan (see Resolution 4 of this Explanatory Memorandum).

As there is no issue price for the Share Rights the intended use of the funds is not relevant.

Background and Board Recommendation

Subject to shareholder approval, Mr Bootle’s employment contract provided for a grant of 10 million share options in October 2009. The grant was to be in 3 equal tranches, vesting in December 2009, December 2010 and December 2011 respectively. A trading restriction of 2 years was to apply after vesting. The exercise price of the options was to be 2 cents, 2.25 cents and 2.5 cents respectively or, if the volume weighted average price of the Company’s ordinary shares in the 12 months before the vesting date was less than the exercise price, 1.8, 2 and 2.25 cents respectively.

Mr Bootle and the Board agreed not to submit the option grant for shareholder approval to the 2009 AGM due to uncertainty arising from the review then being conducted by the Federal Government of the taxation of equity grants. In the light of policy and legislative changes that have since emerged from that review, the Board has decided to establish the Executive Share Rights Plan.

The Board engaged independent remuneration consultants to provide advice on the tax effective conversion of Mr Bootle’s contractual entitlement to share options into share rights, taking account of the effect of delay since October 2009. The expert advice recommended that:

the value of 10 million share options at October 2009 equates to 7,500,000 share rights at the then current market price;
the vesting period of each of the 3 tranches be extended by 6 months, to 1.5, 2.5 and 3.5 years respectively; and
the escrow period after vesting be reduced from 2 years to 12 months.

The Board has adopted this advice. Mr Bootle and the Board have agreed that these changes give Mr Bootle comparable rights to those set out in his employment contract and so should be submitted to shareholders for their approval at this Annual General Meeting. If the shareholders approve these changes the Board will amend Mr Bootle’s employment contract to reflect the approved changes.

The other persons entitled to participate in the Company’s Employee Share Rights Plan are:

Ross Hawkey, Chief Financial Officer Graham Loughlin, Company Secretary and Strategic Development Manager

Greg Gothard, Business Development Manager Geoff George, DataDot Technology R&D Manager Gerhard Swiegers, DataTraceDNA R & D Manager John Kraft, Product Development Manager Phil Kibler, Managing Director, DataDot Technology (UK) Limited Dave Barnes, President, DataDot Technology USA Inc.

Resolution 6: Remuneration Report

Resolution 6 provides shareholders the opportunity to vote on the Company’s Remuneration Report. Under Section 250R(2) of the Corporations Act, the Company must put the adoption of its Remuneration Report to the vote at the Annual General Meeting. The Remuneration Report is contained in the Directors’ report. This vote is advisory only and does not bind the Directors or the Company.

AI assistant

DATADOT TECHNOLOGY LIMITED AGM Information 2010

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